Wednesday, June 28, 2006

The following is a slightly edited version of an email from an attorney with the IRS in its National Office that I received via a tax-related listserve:

Friends, I thought I would enlist your help since you are the current section or committee leaders of some of our most interested bar groups and likely to have the most comprehensive e-mail mailing lists of those who would find this useful. Please pass this information around among your groups.

As you may know, the main IRS building was heavily flooded on Sunday and has been closed since. It will be a while until electric power comes on and we are invited back in to work. Before too long, attorneys should be able to get in to retrieve documents.

Our phone system works and individual attorneys can check their voice mail. Our e-mail server came up today but, as of now, only attorneys with Blackberries have access to our network. . . . By next week, we hope to get some access for the rest of our lawyers -- a few desktops on our intranet to share. Our other computer applications are not yet available, including saved work.

We will try to figure out how to get things done while away from our offices. There will be a few challenges and we hope people will bear with us. . . .

Sunday, June 25, 2006

A bag man (or bagman) is a person designated to collect money in a protection racket. Originally the term only applied to Mafia members collecting for mob bosses, but the term later spread to use in corrupt police precincts where a foot patrolman was the designated "bagman" to pick up and deliver bribes from the local mob(s) to the precinct captain. In many cases, the bagman receives a percentage of the money collected.

* * * * *

In many cases, the bagman acts as "insulation" to protect higher-ups from exposure or direct prosecution.

It is clear from the report of the Senate Committee on Indian Affairs (the McCain Report) and today's story in the Washington Post that Grover Norquist, Ralph Reed, and Amy Moritz Ridenour were all using their respective non-profit organizations to prevent public disclosure of the lobbying efforts of Jack Abramoff. Marcus S. Owens, a tax lawyer at Caplin & Drysdale and a former Internal Revenue Service official, was quoted in the WaPo article as saying that, "It's not a tax-exempt activity to act as a bag man for Jack Abramoff." However, that's exactly what happened, with the various entities controlled by Norquist, Reed, and Ridenour laundering money from Abramoff and his clients, raking off a "commission" for themselves in the process.

Paul Kiel of TPM Muckraker suggests that Norquist and Reed (and, presumably, Ridenour as well, although her case is somewhat more complex), do not face any potential criminal charges. He states that:

The worst that could happen to Norquist, according to [Melanie Sloan, a former federal prosecutor and the Executive Director of Citizens for Responsibility and Ethics in Washington], would be for the IRS to crack down on ATR. His group would lose its 501(c)3 status. That would result in hefty fines, and his donors would be mighty upset, since their contributions would suddenly become taxable. One of the pillars of the modern conservative movement would be disgraced. Pretty bad. But there's not really a criminal case to make against Norquist. No jail time.

Of course, as I previously noted, in Norquist's case, the lion's share of the money to his operation came through his 501(c)(4) entity, not his 501(c)(3) foundation. Thus, the loss of tax exempt status would not have a major affect on his donors.

I am not nearly as pessimistic as Kiel or Sloan. After all, the improper use of the 501(c)(4) and 501(c)(3) organizations was not incidental, it was part of their basic fabric. Thus, the improper tax reporting was not some minor foot fault, it was intentionally false. And, the returns filed by these organizations are executed under penalties of perjury.

I know little about the requirements concerning lobbying disclosures, but apparently there is no criminal penalty associated with filing a false lobbying report with Congress. See here:

PENALTIES. Whoever knowingly fails: (1) to correct a defective filing within 60 days after notice of such a defect by the Secretary of the Senate or the Clerk of the House; or (2) to comply with any other provision of the Act, may be subject to a civil fine of not more than $50,000.

I have to believe that there must be some criminal sanction triggered by operating a wide conspiracy to hide this information from public disclosure.

It would appear that if there's a will, there's a way to prosecute Grover Norquist.

* * * * *

We at TPMm have some current and former federal prosecutors in our readership, who wrote in to disagree with Sloan's analysis.

One, who currently works in the Justice Department, wrote in to say that any material false statement by Norquist in his filing documents with the IRS would be a felony.

And here's another reader, a former federal prosecutor:

If Norquist was running ATR as you describe (or as the Senate report describes), it's virtually inconceivable that he was doing so completely on his own. But if he had even a tacit agreement with at least one other person to make ATR appear eligible for 501(c)(3) status when in fact it was not, then he and that other person conspired to impede the lawful functions of the Internal Revenue Service, which is known to federal prosecutors (like myself, once) as a "Klein conspiracy." It gets you up to five years in prison under section 371 of Title 18 of the United States Code.

Wednesday, June 21, 2006

To sweeten the pot [with respect to passage of the "Permanent Estate Tax Relief Act of 2006"], [Ways and Means Chairman Bill] Thomas added language to his bill that creates a new 60 percent deduction for qualified timber capital gains. This deduction alleviates the tax treatment of timber gains under current law (which is based upon the legal form of ownership of the underlying timber assets). The provision is effective for qualifying gains recognized from the date of enactment through calendar year 2008. The measure is sure to entice Democratic Senators like Patty Murray (D-WA) and Maria Cantwell (D-WA) whose constituents would benefit from such a provision.

Emphasis added.

The staff of the Joint Committee on Taxation today issued an estimate of the revenue loss that the bill would cause. Over ten years, the estimate for the revenue loss from the estate tax portion of the bill is $279 Billion. The estimated revenue loss for the change in tax treatment of timber gains is only $940 Million. (Note: The revenue loss numbers for the change in tax treatment of timber gains from 2006 through 2016 is greater than $940 Million, but the losses for 2006 through 2008 are already part of the law, but the tax break "sunsets" after 2008. Thus, the net effect of the change which removes the sunset provision is the $940 Million.)

Somehow, this brings to mind the old joke where the question is raised: "Just what kinda girl do you think I am." and the punchline is: "We just established that, now we're only negotiating over the price."

Prior to 1924, various states, lead by Florida, began to compete to attract wealthy residents by repealing various taxes that triggered upon death. In that year:

Congress amended the Internal Revenue Code to allow a taxpayer's federal estate a dollar-for-dollar credit for all or a portion of the state death taxes paid by that estate. In 1926, in response to demands from state leaders, Congress increased the maximum amount of this "state death tax credit" to eighty percent of the federal estate tax otherwise payable under the 1926 rate tables.

(All quotes have footnotes omitted.)

In due course, all of the states enacted at least a "pick-up" tax. That is, a tax equal to the maximum allowable Federal estate tax credit.

However, beginning in 2001, the Federal estate tax credit was phased out over a four year period. Cooper describes what happened next:

The state death tax uniformity of the late twentieth century is now but a memory. Interstate competition to attract wealthy residents begins anew.

* * * * *

The popular media has fanned the flames of this renewed interstate competition. One need not read past the headlines to figure out the advice being dispensed. Readers of Forbes have been encouraged to say, "Florida or Bust." Wall Street Journal subscribers have been educated on "A Reason to Relocate." In states with death taxes, local newspapers warn of a pending exodus of wealth. A front-page article in Crain's New York Business decried that retirees are simply "fleeing New York" in response to its state death tax. The Connecticut Law Tribune titled its editorial about the new Connecticut death tax "A 'Run Away' Tax," predicting state residents would run away to Florida in response.

This media pressure has both molded public opinion and helped shape the agenda for the field of estate planning. Helping taxpayers choose their state of domicile has become a fundamental element of modern estate planning practice. Domicile considerations have become so paramount that at least one author has suggested that lawyers in states with death taxes may have an ethical duty to discuss with estate planning clients the virtues of moving out of state.

Amid this backdrop, state leaders seem to be presented with a choice: lose your state death taxes or lose your wealthy residents. A past generation of state leaders faced a similar conflict and confronted a similar decision. Presented with the choice of losing state residents or abandoning state death taxes, they were prepared to choose the latter. The Congress of 1926 preempted that decision. The Congress of 2006 seems unlikely to take similar action.

As such, state leaders of 2006 may have no political choice but to finish what their predecessors started. Looking out across the new death tax landscape after EGTRRA, modern state leaders may consider it futile to compete with Florida and the other death tax havens. They may simply decide that state death tax revenues come at too high a political cost and turn elsewhere for needed tax dollars.

As I have pointed out numerous times here, while the Federal income tax is slightly progressive, state taxes tend to be regressive. (The best analysis is found in Who Pays? A Distributional Analysis of the Tax Systems In All 50 States by the Institute on Taxation and Economic Policy.) That problem has become more pronounced as the Federal tax regime has become flatter with fewer state tax-related deductions. Moreover, since some otherwise deductible taxes (e.g., state income taxes) are subject to the alternative minimum tax, wealthy taxpayers are presented with even greater incentives to leave states which rely on moderately progressive income taxes (e.g., New York, Maryland) and move to states that rely heavily on regressive sales taxes (e.g., Florida).

While directed only at the effect that decoupling has with respect to state estate and inheritance taxes, Cooper's conclusion could just as well apply to many of the recent changes in tax policy at the Federal level that have had a deleterious affect on the ability of states to levy taxes:

State leaders will abandon this traditional source of revenue in favor of others. Burdens will shift. Some taxpayers will lose while others will gain.

Let there be no question: The rich will gain. Moderate income and poor taxpayers will lose. And the public services offered by states and localities (including education) will dramatically decline.

Despite "happy talk" assurances from political appointees at the Department of the Interior and National Park Service (NPS), all is not well this summer in America's national parks. A Coalition of National Park Service Retirees (CNPSR) analysis of the status of 37 national parks – including 17 surveyed in detail by the Coalition -- finds widespread evidence of major problems that will be evident this summer – including decreased safety for visitors, longer emergency response times, endangerment of protected resources, and dirtier and less well-maintained parks – and only grow worse in the coming years.

* * * * *

Key findings of the CNPSR survey include the following:

Visitors and resources at national parks will be put at greater risk this summer than in the past due to extensive full-time emergency and law enforcement staff cuts.

Most surveyed parks will have fewer law enforcement rangers on the job this summer to protect park visitors and park resources.

Visitors to parks this summer will see evidence of deteriorating park operations resulting from reduced preventative maintenance, in terms of scheduled custodial checks, roadside litter pickup, and upkeep for grounds and buildings.

Tuesday, June 13, 2006

I follow a policy of not commenting on cases that either I or my firm are or have handled. However, that policy does not extend to commenting on cases that rely on cases that either I or my firm are or have handled. Science Applications International Corp. v. Comptroller, handed down by the Maryland Tax Court on May 11 falls into this category.

The holding in Science Applications was primarily based on the holding of the Court of Appeals of Maryland in Hercules Inc. v. Comptroller, 351 Md. 101(1998) where I represented the taxpayer. The opinion in Science Applications indicates that the Comptroller's Office either does not or is incapable of understanding the basic Constitutional principles concerning a state's ability to tax companies conducting interstate business.

The principles can be stated simply: A state can only tax economic activities that take place within its borders. However, a state can utilize a formula to tax a portion of a unified business conducted in more than one state so long as the formula reasonably reflects the actual business being conducted in the state attempting to levy the tax. Two or more entities may be aggregated into a single business for state tax purposes if there is an "operational connection" between their business activities.

Science Applications International Corporation had operations in Maryland. However, it also was the parent corporation that owned Network Solutions, Inc. Network Solutions operated independently of its parent. According to the findings of fact:

[Network Solutions] was managed independent of and separate from [Science Applications]. Approximately 5 of the 385 [Network Solutions] employees . . . came from [Science Applications]. [Network Solutions] hired a separate management team from outside [Science Applications], including technical, sales and marketing personnel. [Network Solutions] had a separate Board of Directors. [Network Solutions] had its own Human Resources Director and made its own decisions as to whom to hire and fire. Its first post-acquisition CEO was recruited through a national search campaign.

Based on these facts, it would seem beyond question that, as interpreted by the Court of Appeals in Hercules, there was no operational tie between Network Solutions and Science Applications. The Comptroller apparently argued, much as it had in Hercules, that statements in the parent's annual reports and the parent's financial statements supported a finding that there was an operational connection between the two businesses.

Apparently, the Comptroller hasn't figured out that the "operational function" test means that there have to be facts which show an active flow of "operational value" between two businesses before their respective incomes can be aggregated for state income tax purposes. That test requires that the the direction and control exercised by the parent to the subsidiary has to be greater than that which is exercised by any member of the board of directors of a company. In fact, as the name of the test would seem to indicate, the operations of the parent and the subsidiary have to be intertwined.

My understanding is that the Comptroller is not appealing this decision. However, I also understand that the Comptroller is going to refuse to pay interest on the refund due to Science Applications. Since I am currently involved in litigation on a similar issue, I will not comment on the Comptroller's obstinance or cramped reading of the statute that requires that interest be paid on tax refunds.

Monday, June 12, 2006

Today, Kleinrock reported that the estate tax repeal effort may not be dead. Specifically, it reported that "Senate Majority Leader Bill Frist (R-TN) [whose brother's family will benefit to the tune of a half a billion dollars from estate tax repeal--ed.] is looking for a legislative vehicle in which to attach his initiative [to repeal the estate tax] and get it through Congress. Currently, the top candidate is the pension reform bill."

Also today, TaxProf had links to two position papers on the estate tax.

The first was Neil H. Buchanan's paper The JEC’s Estate Tax Report: Myths and Legends, 111 Tax Notes 1133 (6/5/06). In that paper, Buchanan takes on the oft-repeated baloney of the JEC that the estate tax threatens small businesses. He shatters the argument, concluding:

[T]he closest thing that the JEC has to a credible source regarding the "burdens" of the estate tax cannot rule out the possibility that heirs are able to pay estate taxes if they want to hold onto the family business. The economists who wrote the study even suggest that business owners might not care enough to do all they can to keep the business in the family. The latter possibility means that, even if we do someday find evidence of businesses that were "busted up" by the estate tax, we cannot be sure that was even a bad result from the standpoint of the decedent.

Buchanan notes three other arguments that the JEC frequently drags out in support of repeal. One of those is that the estate tax has reduced the stock of capital in the country by approximately $847 million. He characterizes this argument as being "highly suspect."

Lo' and behold, TaxProf also links to a new missive from the JEC, Reconsidering the True Revenue Yield of the Estate Tax. In that report, the JEC contends that "[a] study from the U.S. Treasury Department found that "estate taxes have a dampening effect on the reported size of taxable estates," reducing reported estate sizes by 14 percent." The report itself does not provide any citation or link to the study, but a quick Google search located it here. The study, literally, reaches the precise conclusion that the JEC reports, but that conclusion does not apply to the current estate tax. Why?

By its terms, the study "explored the effects of estate taxation on bequests using time series data for the period 1948 through 2000." Thus, the percentage of estates subject to the estate tax was significantly higher than it is today.

Furthermore, the report explicitly denies the its conclusion supports the implication that the JEC would read into it, namely that wealth is being diminished as a result of the estate tax. Thus, the report states, "As with much of the work on the taxable income elasticity, it is not clear whether this measures the effects on saving and wealth accumulation, or reflects tax avoidance." (Emphasis added.)

Buchanan notes that JEC reports have a "cover page, with the title of the report above an American eagle seal and [JEC Chair Jim] Saxton's name." Too bad they lack any intellectual honesty.

Wednesday, June 07, 2006

Before the Bush Administration again begins to push a program to "reform" (read "gut") Social Security, you should read the report just issued by the CBO, Projections of Net Migration to the United States. It shows that the estimates of the solvency of the Social Security trust fund are based upon assumptions that, in the dry words of the report, "are subject to a high degree of uncertainty."

Estimates of immigration trends are necessary components in determining the future size of the Social Security trust fund, since:

higher rates of immigration improve the [Social Security] system's solvency, at least for a time—because the immigrant population is disproportionately composed of people of prime working ages, with relatively small percentages of children and the elderly. However, outlays are also affected: those immigrants will eventually retire and become eligible to collect Social Security benefits.

Both the Social Security Administration and the Census Bureau make such estimates. The estimates vary significantly. In 2003,

[a] Technical Panel on Assumptions and Methods was appointed by the Social Security Advisory Board to review the trustees' methodology and key demographic and economic assumptions used to project the future financial status of the system’s trust funds, including assumptions about immigration.

With respect to immigration, the Technical Panel's estimates were strikingly at variance with the estimates of both the Social Security trustees and the Census Bureau. The following chart dramatically illustrates the differences:

(Click chart for larger image.)

You will note that the trustees' estimates are, in the near term, the lowest estimates of the three. This contributed to their recent finding that the trust fund would be depleted earlier than previously estimated. If the Technical Panel's estimates are correct (or, more appropriately, closer to correct), we have more time to deal with structural problems in the system than the trustees' estimates would lead us to conclude. And remember, the estimates as to immigration are only one set of assumptions that go into the final estimate of system solvency. Thus, any single report by the trustees has to be taken with a large heaping of salt because the various assumptions upon which the trustees' conclusions are based "are subject to a high degree of uncertainty."

Monday, June 05, 2006

Jim Maule summarizes a plan he previously outlined for repealing the estate tax in exchange for the income taxation of unrealized appreciation in the decedent's propert. The original plan is set forth here. His summary is set forth here. At the end of the summary, he sets forth the most concise and compelling reasons to oppose the current efforts to abolish the estate tax:

The debate over the estate tax, and the various proposals, including mine, plays out against a backdrop that is very disconcerting, and if it isn't, it ought to be. Most advocates of estate tax repeal refuse to accept the idea of taxing unrealized appreciation at death. They want a system that taxes investment income at low or zero income tax rates and to the extent accumulated, escapes estate taxation. Likewise, they want growth in investment assets to escape taxation. Whatever wonderful arguments can be paraded out in favor of exempting investment income from taxation, the upshot is that the burden of paying for government shifts to wage earners. That shift has already started. Considering the decline in real wages, the payment of low wages to undocumented workers, and the difficulty for wage earners to accumulate sufficient post-taxation discretionary income to move into the investor class, the ability of the nation to sustain itself by seeking all necessary revenue from wage earners is at risk. Many who reply that the solution is to cut government spending are among the first to object when a specific government expenditure is nominated for termination.

There's an undercurrent to the taxation debate that transcends taxation. It goes to the heart of whether this country will continue to have a middle-class, one of the significant indicia of genuine freedom and democracy, or whether it will atrophy into another of the "many ruled by a few" arrangements that have dominated human history. This question is even more provocative when one considers the ways in which the few have made their way into the elite. Though it is important that discussion of these issues be done in a manner that permits the entire citizenry to understand what is at stake, I have serious doubts that it will. The rhetoric accompanying the small estate tax repeal slice of the much larger question about what sort of nation we are, want to be, and will be, reinforces my doubts.

(Emphasis added.)

Linda Beale takes on the WSJ op-ed of Nobel Laureate Edward C. Prescott (which can be found here by subscription only). Astonishingly, Prescott does little more than restate the standard arguments in favor of repeal which have repeatedly been shown to be factually false (e.g., there will be no impact on charitable contributions, the tax hits hardest on small, entreprenuerial businesses, the cost of compliance is roughly equal to the revenue raised, the tax is levied on income that has already been taxed, etc.). (Aside: When a Nobel Prizewinner relies on arguments that, in the main, are well-known to be factually untrue, shouldn't a recall of the Prize be in order?) All of Prescott's empty empirical arguments, however, are nothing more than garnish around his quasi-religious philosophical argument that:

[W]e can only grip the neck of our vibrant economic goose so tightly before it eventually dies and quits laying those golden eggs. And many of those golden eggs come in the form of capital that allows descendents to keep family businesses intact, or to begin new businesses that fuel our economy.

Beale cuts through the foliage and states:

The analogy is colorful, but off target. We are not gripping the neck of our goose at all tightly--we have in fact one of the lowest tax burdens of any of the developed world. Further, estate taxation doesn't prevent descendents from keeping the family business intact--with current exemption levels at $2 million for individuals and $4 million for couples, few businesses are threatened with the tax. While the heirs may diversify their investment and continue to make good as ongoing entrepreneurs, there would likely be room for more entrepreneurial activity without those dynastic families.

Prescott's conception of fairness shortchanges the important function of the estate tax to level the playing field at least somewhat for children born into poverty compared to the richest few. This redistributive function is important, and it should not be disregarded.

In a very real way the fight over the estate tax transcends the details, pro and con. At the bottom, Maule and Beale get it right: It's about about what sort of nation we are, want to be, and will be.

Saturday, June 03, 2006

This report from the Center on Budget and Policy Priorities makes it clear that most Americans would receive no benefit from the repeal of the estate tax. Since 2000, the "lifetime credit amount" (the amount of wealth that can be transferred over one's life without the imposition of any estate tax) has risen from $675,000 per individual ($1.3 Million per married couple) to $2 Million per individual ($4 Million per married couple) today. It is scheduled to rise to $3.5 Million per individual ($7 Million per married couple) by 2009.

As a consequence of this change, the percentage of decedents' estates that are subject to estate tax has fallen dramatically as this graph shows:

The CBPP also reports that the small business/small farm poster children constantly trotted out by the pro-repeal forces really has no current basis in fact:

The Congressional Budget Office estimates that, had the 2006 exemption level of $2 million ($4 million per couple) been in place in 2000, the number of taxable farm estates would have dropped by more than 90 percent, and the number of taxable family-owned businesses by almost three-quarters. At an exemption level of $3.5 million ($7 million per couple), as will exist in 2009, fewer than 100 family businesses and only 65 farm estates would have paid any estate tax.

(Emphasis added.)

And, among this rather elite group, it is unlikely that any would have to sell the family farm:

The CBO considered the question of whether the estate tax forces family farms and businesses to be sold. CBO found that of the few farm and small business estates that would owe any estate tax, the vast majority would have sufficient liquid assets (such as bank accounts, stocks, bonds, and insurance) to pay the tax without having to touch the farm or business. For instance, at a $3.5 million exemption level ($7 million per couple), only 13 farms would have faced such a liquidity constraint. Furthermore, those farm and business estates facing liquidity problems would likely have other options available to them — such as spreading their estate tax payments over a 14-year period — that would allow them to pay the tax without having to sell off any of the farm or business assets.

Friday, June 02, 2006

In the Spring of 1966, I was flunking Latin at Baltimore City College. My teacher, the legendary Mildred Sheff, offered me a deal: She would pass me with a "D" if I promised never to take Latin again. I am proud to say that I have kept my end of the bargain for almost 40 years. (I am also happy to report that I recently saw Mrs. Sheff, now in her 90's, at the supermarket and she's still quite energetic. )

I don't think that it's a violation of the terms of the deal to report on a new website that collects opinions given by the Maryland Attorney General's Office to the various clerks of the court. The site is here. One of the opinions, dated August 2, 2002, by Julia Andrew, delves deeply into Latin scholarship as follows:

Over the past several months, I have received inquiries from a couple of your offices regarding the meaning of the initials "sct" appearing at the top of the formerly-used form of marriage application/license/certificate of marriage. A copy of the old form is enclosed. Apparently, persons in interest needing a foreign language translation of their marriage certificate have inquired about the meaning of the abbreviation.

I have determined that "sct" stands for "scilicet," although it is an improper abbreviation. Knowing that some official documents, such as wills, use to commence with the formal greeting: "Know All Ye Men By These Presents" and recollecting from my high school Latin studies that "scire" means "to know,"I did a bit of checking in Black's Law Dictionary, 7th ed., under "scire" and variations thereof and found the following:

Should the tax base be income or consumption? Is one inherently superior to the other? How do they stack up in terms of simplicity, fairness, and efficiency —the three standards by which tax systems are generally assessed? There appears to be insufficient theoretical or empirical evidence to conclude that a consumption-based tax is inherently superior to an income-based tax or vice versa.

One issue associated with the choice of a tax base is equity — how the tax burden will be distributed across income classes and different types of taxpayers. For example, a tax is "progressive" if tax paid as a percentage of income increases as income rises. Although some types of consumption taxes can be designed to achieve any desired level of progressivity with respect to consumption alone, their progressivity with respect to income could only be approximated. Also, a consumption tax would involve a redistribution of the tax burden by age group, with the young and old generally bearing more of the total tax burden than those in their prime earning years. And the transition from an income-based tax to a consumption-based tax would have the potential for creating windfall gains for some taxpayers and losses for others.

A definitive assessment cannot be made of the effects of taxing consumption on either economic efficiency or the aggregate level of savings.Although the current tax system's distortions of the relative attractiveness of present and future consumption (saving) would be eliminated, to raise the same amount of tax revenue, a consumption-based tax would require an increase in marginal tax rates (since consumption is smaller than income). This action, in turn, would increase the current system's distortion between the attractiveness of market (e.g., purchased products) and nonmarket activities (e.g. leisure). The net effect on overall economic efficiency cannot be ascertained theoretically. In addition, economic theory indicates a consumption tax would not necessarily produce an increase in saving. The increase in after tax income might reduce saving, while the increase in the return to saving may increase it; the net result is uncertain.

A positive aspect of a consumption-based tax is the ease with which the individual and corporate tax systems could be integrated. In addition, the problems introduced by separate provisions for capital gains, attempts to distinguish between real and nominal income, and depreciation procedures would essentially be eliminated. It is doubtful, however, that a consumption-based tax would have much effect on the complexities introduced into the system to promote specific social and economic goals. Many of the same factors that influenced the design of the current income tax system would exert the same influences on the final design of a consumption tax.

Whether one prefers income or consumption, one tax rate or multiple tax rates, a critical point to remember is that the benefits to be derived from tax revision would result from defining the tax base more comprehensively than it is under current law. A tax with a base that is comprehensively defined would prove more equitable and efficient than a tax with a less comprehensively defined base.

(Footnote omitted, emphasis added.)

In other words, the study concludes that the Tax Foundation's hobbyhorse can't run.